India: Sick man of Asia ???

Actually i wanted to name the thread as '"India: Sick man of asia" as put out by one analyst qouted in the article. But didn't want a too negative self-critical title. But it seems india is currently or would very soon be the sick man of asia.

For the last 10 years, India seemed poised to take its place alongside China as one of the dominant economic and strategic powerhouses of Asia. Its economy was surging, its military was strengthening, and its leaders were striding across the world stage.

But a summer of difficulties has dented Indiaâ€™s confidence, and a growing chorus of critics is starting to ask whether Indiaâ€™s rise may take years, and perhaps decades, longer than many had hoped.

â€œThere is a growing sense of desperation out there, particularly among the young,â€ said Ramachandra Guha, one of Indiaâ€™s leading historians.

Three events last week crystallized those new worries. On Wednesday, one of Indiaâ€™s most advanced submarines, the Sindhurakshak, exploded and sank at its berth in Mumbai, almost certainly killing 18 of the 21 sailors on its night watch.

On Friday, a top Indian general announced that India had killed 28 people in recent weeks in and around the Line of Control in Kashmir as part of the worst fighting between India and Pakistan since a 2003 cease-fire. (Is this true, who was it who said this???)

Also Friday, the Sensex, the Indian stock index, plunged nearly 4 percent, while the value of the rupee continued to fall, reaching just under 62 rupees per dollar, a record low. The rupee and stocks fell again on Monday.

Each event was unrelated to the others, but together they paint a picture of a country that is rapidly losing its swagger. Indiaâ€™s growing economic worries are perhaps its most challenging.

â€œIndia is now the sick man of Asia,â€ said Rajiv Biswas, Asia-Pacific chief economist at the financial information provider IHS Global Insight. â€œThey are in a crisis.â€

In part, the problems are age-old: stifling red tape, creaky infrastructure and a seeming inability to push through much-needed changes and investment decisions. For years, investors largely overlooked those problems because of the promise of a market of 1.2 billion people. Money poured into India, allowing it to paper over a chronic deficit in its current account, a measure of foreign trade and investment.

But after more than a decade of largely futile efforts not only to tap into Indiaâ€™s domestic market but also to use the countryâ€™s vast employee base to manufacture exports for the rest of Asia, many major foreign companies are beginning to lose patience. And just as they are starting to lose heart, a reviving American economy has led investors to shift funds from emerging-market economies back to the United States.

The Indian government recently loosened restrictions on direct foreign investment, expecting a number of major retailers like Walmart and other companies to come rushing in. The companies have instead stayed away, worried not only by the governmentâ€™s constant policy changes but also by the widespread and endemic corruption in Indian society.

The government has followed with a series of increasingly desperate policy announcements in recent weeks in hopes of turning things around, including an increase in import duties on gold and silver and attempts to defend the currency without raising interest rates too high.

Then Wednesday night, the government announced measures to restrict the amounts that individuals and local companies could invest overseas without seeking approval. It was an astonishing move in a country where a growing number of companies have global operations and ambitions.

The Indian stock markets were closed Thursday because of the nationâ€™s Independence Day, but shares swooned at Fridayâ€™s opening. Stocks lost another 1.5 percent Monday, and many analysts predicted that the markets will continue to decline.

â€œI think things will get much worse before they get better,â€ said Sonal Varma, an India economist at Nomura Securities in Mumbai. â€œThe government is between a rock and a hard place.â€

The problem for India, analysts say, is that the country has small and poorly performing manufacturing and mining sectors, which would normally benefit from a weakening currency. Meanwhile, India must buy its oil, much of its coal and other crucial goods like computers in largely dollar-denominated trades that have become nearly 40 percent more expensive over the past two years.

That is helping feed inflation, which jumped in July to an annual rate of 5.79 percent from 4.86 percent in June, far above what analysts had expected.

The Reserve Bank of India, the central bank, has recently responded to the rupeeâ€™s weakness by raising interest rates, but those moves have already begun to hurt a huge swath of Indiaâ€™s corporate sector. Growth rates had already slowed to 5 percent in the most recent quarter, and India now has a far harder time meeting its current-account deficit.

Analysts fear that higher inflation, softening growth, a falling currency and waning investor confidence could spin into a vicious cycle that will be difficult to contain.

â€œThereâ€™s a risk of a spiral downward,â€ said Mr. Biswas, the IHS Global economist. â€œIt will be very hard to break.â€

The submarine explosion revealed once again the vast strategic challenges that the Indian military faces and how far behind China it has fallen. India still relies on Russia for more than 60 percent of its defense equipment needs, and its army, air force and navy have vital Russian equipment that is often decades old and of increasingly poor quality.

The Sindhurakshak is one of 10 Russian-made Kilo-class submarines that India has as part of its front-line maritime defenses, but only six of Indiaâ€™s submarines are operational at any given time â€” far fewer than are needed to protect the nationâ€™s vast coastline.

Indeed, India has fewer than 100 ships, compared with Chinaâ€™s 260. India is the worldâ€™s largest weapons importer, but with its economy under stress and foreign currency reserves increasingly precious, that level of purchases will be increasingly hard to sustain.

The countryâ€™s efforts to build its own weapons have largely been disastrous, and a growing number of corruption scandals have tainted its foreign purchases, including a recent deal to buy helicopters from Italy.

Unable to build or buy, India is becoming dangerously short of vital defense equipment, analysts say.

Meanwhile, the countryâ€™s bitter rivalry with Pakistan continues. Many analysts say that India is unlikely to achieve prominence on the world stage until it reaches some sort of resolution with Pakistan of disputes that have lasted for decades over Kashmir and other issues.

With UPA pushing Food bill today just for the sake of winning future election, India will definitely become sick & lean leaving Indian economy in dolldrum. Foreign reserve of just $ 278 billion, with election around the corner & all politicians will be playing blame games & will not be concentrating on the revival of the economy. I feel tough times ahead for poor & middle class.

UPA should restrict importing of luxury items, luxury cars etc & encourage exporting( at least should initiate the process at the earliest).

The government says it wants lower interest rates, and then decides to squeeze short-term liquidity to strengthen the rupee. Net result: interest rates have shot up so fast, this is sure to kill whatever growth there is. Money market instruments are earning over 11 percent, and five- and 10-year bonds are reporting yields of 9.5 percent to 9.25 percent respectively. These rates are higher than what the State Bank pays its depositors right now. Worse, when interest rates rise, the value of bonds held by banks in their portfolios falls-which means banks are starting at further losses beyond bad loans. They will need even more capital from the government-just when it is short of money.

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s there anything the government can do to make the markets believe it is up to something good?

Yes, it can do three things-none of which appears politically feasible right now.

First, it can stop trying to prop up the rupee. Once the market knows this will happen, the rupee will find its own level. Even if it falls to 70 to the dollar, it will rebound, since at these levels, there is good value in India. Exports will boom, and imports will be crunched which is exactly what is required to get the current account deficit down, and stabilise the rupee. If the rupee doesnâ€™t fall now, it will stay weak for prolonged periods of time, and damage the recovery of the economy.

Second, it has to raise diesel prices now-and steeply. Given the rupee's current level and global crude prices, the loss per litre is Rs 10.22-even higher than what it was when slow monthly increases in market pricing were announced. If diesel prices were to be raised in just one or two steps this month and the next, and prices fully deregulated thereafter, the markets would take the government very seriously. Despite the obvious hit growth will take, the markets will see decisive action in this and slow down the rate of decline. The fiscal deficit would crumble, and FIIs will return to the markets. Growth will rebound once the economy adjusts to the new rates. After the fiscal deficit is fixed, interest rates can be easily brought down to levels where growth can resume. If it does not do so, and the US and eurozone economies revive, where do you think crude prices will be? Higher or lower? Time is running out for the UPA on diesel.

Third, the government could announce that it will implement the Food Security Bill only after the fiscal deficit reaches-say-percent of GDP. It can adopt the bill with this proviso, or mandate a coverage that includes only the 22 percent of people below the poverty line (and not 67 percent of the population). This political sacrifice by the UPA can be the most powerful message it can send to the markets of honest intent.

Granted, no government in an election year would want to take such drastic steps.

the stock exchange is following the trend of rupees fall, with a sense to invest it again when it gets established. right now foreign investors are selling their shares at 63 rupees per dollar, and they would back when it would reach 66 rupees per USD, say......

Rupees is comparable to Japanese Yen, and its still overvalued that Yen???????

Actually i wanted to name the thread as '"India: Sick man of asia" as put out by one analyst qouted in the article. But didn't want a too negative self-critical title. But it seems india is currently or would very soon be the sick man of asia.

With UPA pushing Food bill today just for the sake of winning future election, India will definitely become sick & lean leaving Indian economy in dolldrum. Foreign reserve of just $ 278 billion, with election around the corner & all politicians will be playing blame games & will not be concentrating on the revival of the economy. I feel tough times ahead for poor & middle class.

UPA should restrict importing of luxury items, luxury cars etc & encourage exporting( at least should initiate the process at the earliest).

RBI would fix Rupee Level at 71, the only way to Keep CAD Under Control

you can't import more than $500billion/ year till 2015/18, considering the worst scenario

India won't be able export more than $300/$400billion by 2015/18, as the European Markets are finished except few like Germany. and there is a limit US may borrow debt to support world market.

with the above 2 points, we do know that India is having $300billion export since 2011, and it would be almost same this year also, then its because first European markets are on free fall, being bankrupted one by one, hence the export couldn't increase. and at the same time US did borrow debt during last 3 years, which supported the world economies to an extent. but there is a limit, the US may borrow debt to maintain its $2.0trillion+ import from other countries, while the EU28 economies haven't reached their lowest yet . too many Austerity there but still debt is increasing and its around 92.5% to GDP of Eurozone to date. and its also considering the fact that Germany and few other european economies could reduce their debt during last few years while there is no control on the fall of other European economies, stating this 'two way' European future.......

and here, China has been blamed for keeping its currency lower to gain on the export side and hence their Import stands at $1.95trillion and Export at $2.1 trillion by the last financial year, registering a Trade Surplus this way by a margin of around $150 billion. while on the other side, Indian rupees was estimated to be over valued by 17.6% at 60/USD? then, is there any surprise why trade deficit of India stood at around 66% to its export, hence bring CAD to so high level this way???? (export of India at $300billion and import at $500billion by 2011 to 2013)

your CAD worries is directly related to your importing power, which is because of Over Valued Indian Rupees. and you need to depreciate Indian Rupees to the level where it may make the imported products "expansive enough to be imported". :thumb:

Short Time Pain will Bring Long Term Benefits

here, we find, Indian companies have been struggling due to the imported Chinese products, due to "under valued Yuan". and if India produce the same products domestically, it will first provide more jobs to the Indian workers, hence increasing both, the direct and indirect taxes this way. then why is there any reason to keep importing those products which may be produced domestically, and its not possible until you make the imported products, to be expansive enough to be imported? (the short term pain of higher petrol/diesel prices will finally benefit India in future. )

the world is changing and there is a limit, the US can borrow the debt to maintain their current $2.0trillion+ import. and there is no sign that fall of European economies has reached its bottom

India needs to prepare itself considering the circumstances of 2018/20+ when its 90% trade would occur within Asia only. as China will have got a major share of High Tech export business till then, and oil/gas/metal import will come from Asia itself, with reliance on Japan/Singapore for those high tech products which India or China will not be able to produce till 2020. there is no meaning to ignore this biggest threat, when 90% Indian trade will have got limited to Asia only by 2018/20+, and India would prepare itself for those circumstances from today.

Even the most respected central banker, though, canâ€™t stop politicians from spending without accountability. Rajan canâ€™t root out corruption, make the government more transparent, or attack the red tape that is deterring investment and strangling growth. Rajan canâ€™t tweak tax policies to broaden revenue streams and encourage an explosion of startup companies. He canâ€™t reform education and training programs, or see to it that India has as many toilets as mobile phones. He canâ€™t spearhead the improvements in infrastructure that are needed to create more manufacturing jobs. He canâ€™t strike grand bargains between the parliament in New Delhi and powerful state leaders, who are at odds on virtually every upgrade the economy needs.

The central bank has no say over barriers to imports and investment. It canâ€™t nudge executives to improve corporate governance. It canâ€™t reduce Indiaâ€™s reliance on foreign energy at a time of rising tensions in the Middle East or hold off the competitive threat from China. All Rajan can do is treat the symptoms of Indiaâ€™s funk, not the underlying sickness.

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The man who must address the core problems, Prime Minister Manmohan Singh, is a spent force. The double-digit output India experienced in the past decade was, in some ways, a debt-driven mirage enabled by short- term capital flows. High growth rates papered over Indiaâ€™s cracks and masked the governmentâ€™s failure to narrow the gap between rich and poor as well as translate rapid output into good-paying jobs. Now that growth has slowed to a paltry 4.4%, all of Indiaâ€™s problems are being exposed. However determined and decisive Rajan may be, the real reforms that India needs are on hold until Mayâ€™s election. P. Chidambaramâ€”serving as finance minister for a third timeâ€”understands Indiaâ€™s troubles as well as anyone. But he is a possible successor to Singh should the Congress party win at the polls. That means that the two men most pivotal to India getting its act together probably wonâ€™t be doing anything bold or creative between now and then.

For the next nine months, Indiaâ€™s rot will only deepen. Thatâ€™s about 270 days to hit new lows on the rupee and for rating companies to mull downgrades. Wasting this time might seem less irresponsible if India had enjoyed a surge of reformist energy in the last 10 years. Instead, itâ€™s been a lost decade for change.

Not a problem with being secular, but its not secularism that UPA promoted it was sickular to hide its incompetence.

It has no vision how to make the country strong economically, militarily but day in day out I'm being fed this sickular garbage.

Now if you have a problem that I point out this, then I suggest you move to Pakistan.

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Earlier it was Hindu Mahasabha, now they have become kacha wala in saffron, they are no different then green color muslim league. Between both the communals only aam Admai gets killed. I never say any RSS or Kacha wala getting killed in communal riots or any Muslim leader getting killed.

One is saffron and other is green and in between people like in white think what to do with both of you. That is why we give our self the present Constitution.

As far as mismanagement is concern if people of India dont like the present Govt they will be thrown off, that is the power of Vote. Some wont like it, well, we cant help them.

You have no problem with China or Nepal, may be you will find escape from Secularism their, so best of luck.

I am ok with what ever India is Today, it is not perfect, we all are either, but we can make effort to make it better. Those who dont like it, can go to Hindu country.

Earlier it was Hindu Mahasabha, now they have become kacha wala in saffron, they are no different then green color muslim league. Between both the communals only aam Admai gets killed. I never say any RSS or Kacha wala getting killed in communal riots or any Muslim leader getting killed.

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You need a reality check if you believe RSS and SIMI are the same side of same coin.

One is saffron and other is green and in between people like in white think what to do with both of you. That is why we give our self the present Constitution.

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Saffron over green anyday, that's my motto

As far as mismanagement is concern if people of India dont like the present Govt they will be thrown off, that is the power of Vote. Some wont like it, well, we cant help them.

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Well getting in power through coalitions, that's a subject to debate in itself.
Its more like seizing power rather being entrusted a mandate by the people.

You have no problem with China or Nepal, may be you will find escape from Secularism their, so best of luck.

I am ok with what ever India is Today, it is not perfect, we all are either, but we can make effort to make it better. Those who dont like it, can go to Hindu country.

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Those who dislike the Hindu majority India can also move to Pakistan. While most can harp/bark about secular its because of that 80% majority otherwise you can check across the border. Be thankful to that majority community.

The choice India must make is between development and stagnation, not Hinduism and secularism. A politician can be secular and deliver the goods, just as he/she could bleed saffron and still wallow in corruption. The only tie here is that some politicians seem to use extremes along that religious spectrum to cover their failed policy at election time.